WASHINGTON — More clues to an ongoing financial mystery emerged Thursday on Capitol Hill, with former Treasury Secretary Henry Paulson taking the political stage to declare that it was he who pressured Bank of America to buy Merrill Lynch in December.

Even as Paulson told lawmakers he did what he thought was best, they criticized him for overstepping his regulatory boundaries and working in the shadows on a matter they said required more oversight and public disclosure.

"In a way, the Bank of America-Merrill Lynch deal illustrates the dangers of concentrating enormous power in only one or two individuals," said Rep. Edolphus Towns, D-N.Y., the chairman of the House Oversight and Government Reform Committee.

Paulson is the third witness to testify before the committee about the blur of anxiety at the top levels of the U.S. financial regulatory agencies in the days before the government-brokered purchase of Merrill Lynch by Bank of America, which was then the nation's largest commercial bank.

Bank of America Chief Executive Ken Lewis previously told the committee that both Paulson and Federal Reserve Chairman Ben Bernanke made a simple threat to him: Back out of the Merrill Lynch merger and you and Bank of America's board of directors will lose your jobs.

Last month, Bernanke denied making any such threat.

Seated alone at a long table Thursday, Paulson submitted to three and a half hours of often heated questioning, his raspy voice so low at times that lawmakers repeatedly had to remind him to lean into his microphone.

Paulson recalled that in December, he told Lewis that it would be "a colossal lack of judgment" to invoke a clause calling off the $50 billion deal to buy Merrill Lynch. He also informed Lewis that both the executive and the bank's board of directors could be fired if the deal didn't go through.

Thursday, however, Paulson said he wouldn't characterize his words as a threat.

"I was attempting to send a very strong message to Ken Lewis in terms of how strongly the Fed and the Treasury viewed this matter," Paulson said.

He testified that the deal was not only good for the companies, but also for the rest of the country.

"The interests of the nation and Bank of America were aligned," Paulson testified.

His testimony comes as Congress widens its probe into the Bank of America merger with Merrill Lynch, which took place as financial regulators scrambled to keep markets afloat. Bank of America shareholders have filed suit over the deal, saying the extent of Merrill Lynch's fourth-quarter losses was kept hidden before their vote approving the deal.

Lawmakers on both sides of the aisle also are examining whether last year's government intrusion helped or worsened the financial crisis.

Republicans on Thursday pushed a storyline that government action begun under former President George W. Bush has worsened under the Obama administration and threatens the free market system.

"I think it's clear you intimidated Mr. Lewis," said Rep. Jim Jordan, an Ohio Republican. "People need to look at this situation because it shows where we're headed. . . . We've got unprecedented government involvement in businesses around America."

Democrats, meanwhile, wondered whether large banks received special treatment under the veil of secrecy. Even as Bank of America paid $50 billion for Merrill Lynch, Lewis was receiving private assurances from Paulson that the bank would receive the government backing it wanted.

Less than three weeks after the deal closed on Jan. 1, Bank of America received $20 billion in bailout funding. The figure would eventually increase to $45 billion.

"Now it looks like a marriage of convenience," Towns said in his opening statement.

"Ken Lewis got what he wanted, and the Treasury and Fed got what they wanted," he said. "All of this happened against a backdrop of unchecked government power, with no transparency or accountability."

Rep. Dennis Kucinich, D-Ohio, wondered why Lewis — if he was such a bad leader — wasn't fired by government officials who repeatedly questioned his leadership last fall.

Paulson said that because Lewis went ahead with the deal, he showed good judgment after all.

"You have to ask: 'Is this management capable of running the firm, and is there anyone you know of who could do a better job?'" Paulson said.

Rep. Patrick McHenry, R-N.C., said he thinks Lewis "is almost out of the woods" in terms of holding onto his job.

However, he thinks Congress should continue its inquiry.

"What we have to ensure is that we don't have government intimidation and bullying," McHenry said. "The implication for me as a policy maker is to make sure it doesn't happen again."

Towns said he'd continue the probe into the Bank of America deal later this summer.

He plans to call Christopher Cox, the former chairman of the Securities and Exchange Commission, and Sheila Bair, the chairman of the Federal Deposit Insurance Corp., to testify after Congress' August recess.

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